27 April 2015

SOEs continue to play an important role in many Pacific island countries.
Many absorb large amounts of scarce capital on which they provide very low returns. While some provide essential public services, many others operate as purely commercial ventures and crowd out the private sector.

Through a combination of legal, regulatory and monitoring reforms and the introduction of increased private sector participation, the performance of SOEs and infrastructure service delivery is improving in the Pacific. PPPs expand the capacity of SOEs to deliver infrastructure and related services and also allow governments to contract directly with the private sector without the involvement of SOEs.

ADB, along with its PSDI cofinance partners Australia and New Zealand, have been working with Pacific island countries on SOE reform and PPPs for more than a decade. Key in driving this agenda has been publishing PSDI’s Finding Balance series: in-depth, analysis that tracks the challenges, achievements and best practices in SOE reform in PDMCs, providing a unique benchmark with which to measure progress and share lessons learnt. Finding Balance has proved a valuable advocacy tool in driving SOE reform.

“Competition policy” encompasses the range of policies, laws, regulations, decisions, and government actions that aim to promote competitive behavior between business undertakings and rationally address any circumstances in which competition might not be efficient or might conflict with other important social objectives. As such, competition policy forms an important part of national economic policy.
Competition policy is an increasingly important theme in PSDI and is now a focus area for activity in its own right. It is especially important in Pacific island economies because of the trade-offs between small market size and economic efficiency. Lack of competition allows firms to restrict output and/or raise prices without losing sales and reducing profitability because there are no (or few) other suppliers from which consumers can purchase a particular good or service. This is often the case with basic necessities (i.e., electricity, water, and other utilities). A lack of competition may also allow firms to reduce the quality of their products while maintaining prices or ignore market pressure for change. Such outcomes are clearly against the interest of consumers, and reduce overall efficiency and growth prospects. Competition policy may advance a variety of objectives, such as:

ensuring market efficiency,

encouraging entrepreneurship and innovation,

supporting good governance by restricting opportunities for rent-seeking behavior,

supporting equality of access to economic opportunities,

enhancing the climate for investment, and

promoting sustainable and inclusive economic development.

Competition is also a far preferable alternative to price controls, which have been widely used in many Pacific island economies. Price controls distort domestic production and fail to increase supply. These then result in raised prices.
The economic value of competition between firms stems from three types of benefits:

Better allocation of resources. In competitive markets, producers respond to price signals so that consumers can obtain the amounts of goods and services they require at the price they are willing to pay. In a competitive framework, producers do not restrict outputs and raise prices.

More efficient production. The pressure of competition forces suppliers to produce their goods or services at the lowest cost possible. To maximize their profits, suppliers must find the most efficient ways to produce their goods or services.

Innovation. Under competitive conditions, producers are more likely to innovate and develop new products and methods of supplying products. Domestic competition prepares local businesses to better compete in regional and international markets.

Competitive pressures also help minimize supply costs and keep producers mindful of consumer demands and market trends. For the public, the benefits of competition are apparent when competition is contrasted with monopoly (or a market structure where there are only a few suppliers, which may attempt to collude). In a monopoly,

the quantities of goods and services available may be restricted,

goods and services may be outdated and produced at higher cost than necessary, and

consumers may be charged higher prices than they would pay in a competitive market.

However, the relative size of economies in the Pacific implies that some sectors cannot support many competitors. In some sectors, economic efficiency dictates that only one or two suppliers serve the domestic market. This does not mean, however, that competition has a small role to play in Pacific island economies. On the contrary, it strengthens the case for competition policy and competition law. Effective competition law deters suppliers that might otherwise attempt to engage in anticompetitive conduct.
To date, PSDI assistance with competition policy has been focused on three countries: the Cook Islands, Papua New Guinea, and Samoa. This will expand on both the country and regional levels as part of the third phase of PSDI 2013-19.

Under-investment in women, who represent 40% of the world’s labour force but hold just 1% of its wealth, is now widely recognized as an opportunity cost for economic growth and business performance.
Women in the Pacific are an enormous potential economic resource who have the capacity to greatly enhance prosperity. Gender equality is recognised as one of the drivers of change in ADB’s Strategy 2020. Since PSDI’s inception in 2007, gender mainstreaming has been applied to all its initiatives. In 2013, PSDI began an Economic Empowerment of Women (EEOW) program, where it is actively working to identify spaces to initiate pilot programs that encourage women’s engagement with the private sector.

21 April 2015

HONIARA,
SOLOMON ISLANDS (22 April 2015): The Solomon
Islands is leading the Pacific region in its successful reform of state-owned
enterprises (SOEs), according to an Asian Development Bank (ADB) report presented
in Honiara today.

The report, Finding Balance 2014: Benchmarking the Performance
of State Owned Enterprises in Island Countries, shows that in the last 5 years
the Government of the Solomon Islands has overseen a 21% turnaround in return
on equity from SOEs, turning an average loss of 11% between 2002-2009 into an
average return of 10% in 2010-2012. This improvement follows a program of
increased privatization, public-private partnerships (PPPs), financial
restructuring and efforts to place SOEs on a sound commercial footing.

“The outcomes the Solomon Islands has
achieved—such as improved service delivery, reduced costs, and more
opportunities for private investment—show what these kinds of reforms could
achieve for other Pacific countries in a relatively short time,” said Laure
Darcy, an SOE/PPP specialist and one of the report’s co-authors. “It also shows
that reform gains can quickly be lost without ongoing efforts to sustain them.”

Finding Balance 2014identifies
strategies to guide reforms of SOEs, highlighting the importance of finding the
right balance between public and private sector roles. It is the fourth in the Finding
Balance series produced by the Pacific Private Sector Development Initiative
(PSDI), a regional technical assistance facility co-financed by the Government
of Australia, the New Zealand Government, and ADB.

The report’s findings and
recommendations topped the agenda at today’s Solomon Islands State Owned
Enterprise Forum, hosted by PSDI. The event, which was opened by the Permanent Secretary of the Ministry of Finance and Treasury and attended by senior representatives from both SOEs and the
private sector, also heard about experiences in SOE reform in other island economies.

As the report documents, SOEs continue
to exert a significant drain on the economies of the Pacific region. Analysis
of SOE performance across nine countries,
including six from the Pacific—Fiji, the Marshall Islands, Papua New Guinea,
Samoa, Solomon Islands, and Tonga—shows that while some countries have been
able to make great gains, others have struggled to enact reform.

The turnaround in the Solomon Islands
has made its SOE portfolio the most profitable in the Pacific in 2010-2012. The
ADB has supported a number of the reforms that have contributed to this,
including the privatizations of Sasape Marina, Home Finance Limited and Solomon
Island Printers, and the implementation of a community service obligation
framework as required by the SOE Act of 2007.

PSDI is working with
ADB's 14 Pacific developing member countries to improve the enabling
environment for business and to support inclusive, private sector-led economic
growth.

ADB, based
in Manila, is dedicated to reducing poverty in Asia and the Pacific through
inclusive economic growth, environmentally sustainable growth, and regional
integration. Established in 1966, it is owned by 67 members—48 from the region.

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produced an average annual return on equity of –11% during 2002-2009 and 11% from 2010-2013,
the most dramatic turnaround in the region. In 2013 it was the most profitable
portfolio in the Pacific, returning 14% on equity and 10% on assets.

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has, since 2008, seen 4 SOEs divested through a merger, a share sale and an asset liquidation,
reducing their fiscal burden on the government.

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has undergone financial restructuring
of three SOEs involving the settlement
of arrears, debt forgiveness and new equity investment, coupled with commercial
sustainability measures.

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has implemented a community service obligation framework to support the commercial
mandate of its SOEs, which has allowed over SDB80 million of services to be
delivered to communities from 2011-2014 on an efficient, transparent basis.

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remains fragile and requires continued implementation of the SOE Act, partnerships with
the private sector and further restructuring of its smaller SOEs.

1 April 2015

Financial markets in the Paciﬁc are generally underdeveloped, and many people, particularly women, do not have access to even the most basic ﬁnancial services, especially in rural areas.

Access to credit remains a problem, despite excess liquidity across Pacific financial systems and the increased availability of savings products. Without access to ﬁnancial services, businesses cannot grow, entrepreneurship is stifled, and people on low incomes cannot save securely to invest, pay bills, or move beyond subsistence living standards.

To address these issues, PSDI focuses on developing the linkages within the financial system to deliver better intermediation between savers and borrowers, so as to increase the availability of loans, securities and other financing instruments. Better financial intermediation requires improving the integrity of financial systems; strengthening selected financial institutions; designing and implementing new products tailored to the realities and particular needs of Pacific island countries; and supporting financial inclusion throughout the Pacific.

Finally, it means undertaking the analytical work to identify the institutional constraints to access to finance, and advocating for appropriate policy responses.